Driving Innovation: RMS making noise in the tech sector to better Cat Risk Management

Back in September of 2013, Alex Barnett stood on a stage in Mission Bay-CA at the closing award ceremonies of the Tech Crunch Disrupt Hackathon. Barnett, a freshly minted VP of developer relations with the catastrophe modeling firm RMS wasn’t there to speak to the catastrophic losses from Hurricane Sandy a year prior or forecast the damage potential from a Loma Prieta quake repeat. He was there to present the award for “Best Vertical Disrupter” to Kiwi Wearables, a tech startup launching a new wearable sensor in hopes of changing how we utilize technology in our day-to-day life.

And the insurance industry will be better for it sooner than you think.

Before we all freak out, I’m assuming RMS has no intention of partnering with KW for the next level of telematics (at least I hope not). Rather they are making a statement that they want to be a part of the emerging tech and software industry. And, well, rubbing elbows with the Zuckerburgs and Marissa Mayers of the industry at a Tech Crunch Conference is one heck of a start.  If that didn’t catch your attention, contracting with Verne Global’s green cloud computing center in Iceland for future data hosting certainly should.  And this time, being proactive has RMS in the driver’s seat.

It wasn’t exactly a yellow brick road to this point. In 2011 the firm released an updated version of their hurricane loss model.  This release integrated claims info from Hurricane Ike in 2008 and expanded on storm surge loss science from recent research and as well as lessons learned during the ’04 and ’05 seasons.  The update resulted in many insurance companies undergoing dramatic increases in their Probable Maximum Loss (PML) and Aggregate Annual Loss (AAL) numbers, which sent shock waves through the property insurance world. Reinsurance renewal rates hardened, rating agencies scrutinized the new values, and companies who had implemented catastrophe pricing into their sales and marketing processes scrambled to assess the “damage”. It also opened the door for competitor models from AIR and EQECat, with many companies exploring result blending, or full out switching models.

The hot cat bond/ ILS model all but abandoned RMS due to the high variability from version to version, and many opted for AIR to be the transaction model of choice.

RMS needed a “pivot” to get in front of a skeptical and scrutinizing user base while differentiating their company going forward.  The arena of choice? Big Data, increased transparency and open platforms for partnering and hosting.

RMS is set to launch their updated platform in Spring of 2014 known as RMS(one). Will the consumer see a sudden change in the way we purchase homeowners insurance?  Probably not. But the primary insurers will need to adapt to new and faster tools, more integrated results that push the modeled loss estimate to the point of sale, thus increasing the need for more accurate and competitive actuarial approaches and intelligent risk mitigation financial structures.

There are other hurdles to cross as (one) rolls out, but the bar has been set and companies will need to decide where they want to be. It is almost certain that RMS will foster increased growth and presence in emerging tech, be it through association and/or utilization.

Just don’t be shocked when your next your next 100 year PML is reported in Bitcoin.

-PMB_Z

Update:

– RMS and MongoDB recently announced a partnership for cloud hosting and Big Data aggregation for their new platform RMS(one) in Spring 2014.

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